EconoMonitor

The Kapali Carsi

Kill (Turkish conspiracy theories and corruption) Bill

I know, I know: I got obsessed with the Kill Bill title:) And I accept that it is very cheesy. Anyway:

According to the ruling Justice and Development Party (AKP), the graft investigations are part of an international plot to prevent Turkey from becoming a regional power by thwarting Erdoğan’s mega projects like the third bridge and the new airport.

Here is the introduction to my latest Hurriyet Daily News (HDN) column, where I discuss whether there is any merit, from an economic point of view, to the AKP’s conspiracy theories. I also discuss how much the corruption scandal has cost the economy, another point of debate. You can read the whole thing at the HDN website. I have a few additional points to make.

First, it is wrong to attribute all, or even most, of the decline in Turkish assets to the graft scandal. Like during the summer, the global backdrop is more important. Just like in the summer, when the Gezi protests started a week after Ben Bernanke’s (in)famous  tapering announcement, Turkey would have seen capital outflows and fall in asset prices even without the investigations. Capital is again flowing from all emerging markets, and due to its external vulnerabilities, Turkish assets are usually affected more than peers from the global sentiment.

As for the arguments against conspiracy theories, a reader gave me an idea: He argued that the strong demand for Turkey’s 10-year sovereign (hard currency) bond should be more than enough to dispel conspiracy theories. However, you could also argue that “the interest rate lobby” messed things up so that Turkey would have to pay higher rates. There is always a counterargument to any argument. Interestingly enough, in his TV interview today, economy tsar Babacan dispelled conspiracy theories himself, the ones that he had supported a few weeks ago, by noting that the strong demand showed foreigners’ trust for the country’s future. But two counterarguments are in order: For one thing, the bond is in dollars, not liras, so the only risk you are facing is Turkey going bust, which is not a risk at all. And given that, the 5.85 percent yield is pretty good- the same bond yielded 3.5 percent, and trading at 5.4 today before the auction. Besides, the strong demand also reflected the general global demand for such bonds. In sum, I would label that bond auction as neither a rebuttal of the conspiracy theories nor trust in Turkey’s economy.

A couple of words on the economic cost of the graft scandal: First, I have to clarify that the government is actually downplaying the effect of the exchange rate depreciation by emphasizing that most of the firms’ FX debt is short-term. But if you ask me, the lira depreciation is, with its impact on corporate balance sheets and inflation, likely to be more harmful than the rise in bond yields and fall in stock market combined.

I don’t want to give way too much of Monday’s HDN column, where I will go over the real costs of the scandal, but I will be going over unemployment, banks and household balance sheets…

2 Responses to “Kill (Turkish conspiracy theories and corruption) Bill”

chaircatJanuary 27th, 2014 at 6:01 pm

so much I'm hoping you'll speculate on today; What will be the outcome of tomorrow's special meeting? Will the fact that the rate declined after the announcement cause overconfidence and another half-measure or less? & out of your field somewhat, is the talk of reintroducing the cram-school bill coincidental or "meaningful"?

chaircatJanuary 29th, 2014 at 3:52 pm

the suspense is killing me; waiting for your comments on yesterday's surprise move and what it will mean!